The global economy and the financial markets were dominated by the coronavirus pandemic in 2020. The outbreak of the coronavirus and the necessary lockdown measures resulted in severe restrictions on economic activity in all regions of the world in the first six months of the year. Overall, the global economy contracted by 7.8% compared to the previous quarter in the second quarter of 2020 according to the German Federal Ministry of Economic Affairs and Energy. The third quarter of 2020, however, was once again characterized by a marked global economic revival. The growth rate of 7.4% compared to the second quarter of 2020 almost matched the decline witnessed in the previous period. This recovery came under threat again when renewed restrictions were imposed in the fourth quarter. At the same time, the prospect of vaccine success stories fueled hopes of further normalization.
In contrast to the global financial crisis of 2007/2008, the shock did not originate from the financial system, but the sector has nevertheless been hit hard indirectly. This is largely because it was impossible to predict either how long the pandemic would last, or what sort of impact it would have on the economy. Equities and corporate bonds slumped considerably at the end of February 2020 as market participants increasingly scrambled for liquidity and fled to safer investments. Liquidity requirements in the corporate sector, too, increased significantly in the spring as a result of the lockdown measures. Due to the looming shortage of liquidity, the Bundesbank rated the threat to financial stability as being exceptionally high.
In response to the spread of the coronavirus and in a quest to stabilize the financing markets, the European Central Bank (“ECB”) launched the Pandemic Emergency Purchase Programme (“PEPP”) in March as a special monetary policy measure. The PEPP was launched as an additional temporary program aimed at the purchase of private and public-sector securities with a total volume of € 750 billion. In June, the ECB increased the volume of the PEPP to € 1,350 billion, before increasing it by a further € 500 billion in December to a total of € 1,850 billion. The ECB has said that it intends to continue with this temporary measure until it considers the critical coronavirus phase to be over, but at least until June 2021.
Purchases in connection with the PEPP are in addition to, and separate from, the Asset Purchase Programme (“APP”) launched back in 2015. In March 2016, the ECB had expanded the APP to include purchases of non-financial corporate bonds (Corporate Sector Purchase Programme; “CSPP”). After having already suspended the net purchases between January and October 2019, the volume of the APP was temporarily expanded to € 120 billion in March 2020 in response to the pandemic. The ECB does not expect to end the program until it is just about to raise key interest rates.
At the same time, the ECB is providing commercial banks with further favorable long-term loans and is easing the conditions for those long-term loans that are already in place. The deposit rate in the euro area has been unchanged at -0.5% since September 2019, while the main refinancing rate is 0.0%. The yield on ten-year German Federal bonds fluctuated in 2020 and has been in negative since May 2019.
The U.S. Federal Reserve System (“FED”), the world’s largest central bank, also remains on an expansionary course. At the beginning of the year, the FED confirmed its monetary policy course and opted to stick with its interest rate corridor for the key rate of between 1.50% and 1.75%. In March 2020, the FED then cut the key rate twice in a short time as a consequence of the coronavirus pandemic. Since then, it has been in the range of 0.00% to 0.25%.
In addition, a new bond purchase program worth approximately USD 700 billion was launched in the United States as well. Since June, the FED has been buying USD 80 billion in government bonds and USD 40 billion in mortgage bonds every month. In December, it also announced that it intends to keep the volume of its monthly asset purchases at USD 120 billion until substantial further progress toward full employment and price stability has been achieved.
One of the World’s Biggest Capital Market Issuers
The rating agency Standard & Poor’s has assigned Vonovia SE a long-term corporate credit rating of BBB+ with a stable outlook and a short-term credit rating of A-2. In 2020, it upgraded Vonovia’s business risk profile from “strong” to “excellent” for the very first time. The Berlin-based Scope Group has also issued Vonovia SE a rating of A- with a stable outlook.
Vonovia’s first-class credit rating continues to give the company unrestricted access to the international capital markets. In February 2020, for example, the volume of a bond maturing in 2026 was increased by € 200 million. Vonovia issued another two bonds with a total volume of € 1 billion in April. The very high demand for these issues despite considerable coronavirus-related uncertainty on the financial markets bears testimony to Vonovia’s exceptionally good access to the capital market. Two further bonds totaling € 1.5 billion were placed successfully in July.
With an issue volume of € 2.7 billion (2019: € 3.0 billion), Vonovia once again ranks among the top 20 euro-investment grade issuers in 2020 based on analyses performed by Dealogic. The volume-weighted average interest cost of the new bonds is 1.28% (2019: 1.13% p.a.) with a weighted average maturity of 7.5 years (2019: 10.5 years). We made active use of the difficult market environment in 2020 to further optimize our capital structure.